Metals are the future. EU introduces new Critical Raw Materials Act

Given Russia’s invasion of Ukraine, the importance of having diversified supply chains for critical commodities has become evident. To ensure the EU’s security of supply, the European Commission presented its proposal for a European Critical Raw Materials Act on Thursday.

Europe’s demand for raw materials is expected to increase drastically, while it remains heavily reliant on imports. 98% of rare earth elements are imported from China. This leads to increased vulnerability in the affected industries. Furthermore, the EU’s ability to achieve its climate and digital goals, such as the expansion of the 5G network, is at stake.

To reduce dependencies and ensure the security of supply of production-critical metals for European industry, strict benchmarks now apply, especially for metallic commodities such as gallium, germanium, and rare earth elements. For instance, at least 10% of their production volume must originate from the EU, and 40% of their processing should take place here. These are ambitious goals.

Exactly how these goals are to be achieved is not yet entirely clear. Even with the proposed shortened approval procedures, mines still require at least 8 to 10 years before extraction can begin. While recycling is undoubtedly an important part of the path towards a circular economy, it has not yet proven cost-effective due to the high energy expenditure. Therefore, technology metals and rare earth elements will remain at their current level of scarcity for quite some time. However, according to the President of the European Commission, the demand for rare earth elements is expected to quintuple.

Companies involved in the exploration, production, and processing of these commodities can benefit from increased interest and higher prices. Investors who invest in these commodities can also look forward to attractive returns, including tax-free storage and tax-free profits after a one-year holding period.